Fiscal Policy contributes to the deliberate changes in government spending and tax collections to achieve full employment, control inflation and encourage economic growth.
In the Islamic economic system, as to macroeconomics level, Zakat is the major tool in the fiscal policy that affects the resource allocation, level of aggregate demand as well as distribution of income. The variations in disposable income and fixed and circulating capital were the result of the variations in the volume and timing of collection and disbursement of Zakat. As the Zakat are levied from the wealth, the importance of this tool is enhanced with high ratio of Zakat.
Central government sometimes uses budgetary actions to “stimulate the economy” or “reign the inflation” because it may be due to significant decline in aggregate demand that can cause recession cyclical unemployment and whereas, an excessive increase in aggregate demand can cause demand-pull inflation.
The Holy Qur’an rules out to the effect:
“Verily the sadaqat ( i.e taxes on Muslims ) are only for the needy and the poor and those work for these (taxes) are those whose hearts are to be reconciled and to free the necks (i.e slaves and prisoners of war) and the heavily-indebted and in the path of God and for the wayfarer-a duty imposed by God; God is Knower, Wise” (9:60).
The above-mentioned verse provides the principles of State’s expenditure in Islam.
Sadaqat also synonymous with Zakat, which implies the State tax on Muslims.
These taxes may come from taxes on industry, businesses, jewellery, income and savings, but excluding the revenues levied on non-Muslims.
The needy (fuqara’) and the poor (masakin) are almost synonymous, but scholars differ in their opinions on these terms. During Caliph Umar (r.a.) (recorded by Abu Yousuf in his Kitab Al-Kharaj and Ibn Abi Shaibah in his musannaf ), fuqara’ are among Muslims and masakin are among non-Muslims who are residing in the Islamic territory, meanwhile, according to Shafi’(r), these two terms are definitely synonymous and that God, out of His bounty, named them twice in order to make a double provision. So, it is the duty of the State to ensure that the needs of these groups are fulfilled in terms of food, clothing and etc.
In addition, those hearts are to be reconciled (mu’allafah), in modern term is referred to as “secret fund”. According to Abu Yala al Farra says: “As to those whose hearts are to be won, they are of four kinds:
(i) Those whose hearts are to be won for their coming to the aid of the Muslims.
(ii) For abstaining from doing harm to Muslims.
(iii) For inviting them to embrace Islam.
(iv) For inviting through them their clans and families to embrace Islam.
Moreover, “freeing the necks” means that, spending to which helping to free slaves and the prisoners of war. The Holy Qur’an rules out:
“…and any of your slaves ask for a deed in writing ( to enable them to earn their freedom for a certain sum ), give them such a deed if ye know any good in them: yea, give them something yourselves out of the means which God has given to you. But force not your maids to prostitution when they desire chastity, in order that ye may make a gain in the goods of this life. But if anyone compels them, yet, after such compulsion, is God, oft-forgiving, most merciful to them” (24:33).
So, the government plays such an important role in providing such funding in order to help this group of people to freely live their lives. For instance, during the time of Umayyad, caliph Umar ibn Abdul Aziz (r.a.) (reported by Sa’ad (r.a.), says, that the payment of the ransoms by the Muslims government includes liberating even the non-Muslim subjects who would have been made prisoners by the enemy.
The next category goes to: “those who are heavily indebted” means those who are suffered from flood, earthquake and etc which are beyond their control. For such instance, during the time of caliph Umar ibn Abdul Aziz (r.a.), he sets up a provision called the Public Treasury in order to lend money, interest-free loans to these people to help them start a new life and he also lend the money to merchants for fixed period and the Treasury is participating in their business or also known as musharakah. The same thing applies to the State expenditure, known as the social insurance, in which somebody who were found guilty of involuntary homicide and was unable of paying the blood money required by law, the State enforced its power by helping him pays for the compensation as it is listed in the government budget.
Moreover, “in the path of Allah (swt)” is referred to as contributing to all charitable works such as helping students, grants and aids in religious causes such as the construction of mosque, etc. Lastly, it does concern with the communications and tourism such as the construction of bridges, roads, hotels, restaurants, security of routes (police included) and etc.
The aforementioned Divine rulings are to facilitate the fiscal policy in macroeconomics measures, their effective implementation shall be depending on the government concerned with due efficiency.
Nicely Written
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